Because of the COVID-19 pandemic, second quarter earnings reports were a good news/bad news situation for most of the nation’s major in vitro diagnostic (IVD) companies.
The good news was that demand for COVID-19 tests meant increased sales and revenues for IVD firms selling those products. But the collapse in routine lab testing that happened in March, April, May, and June was bad news for companies providing those products.
However, despite the dramatic decline in routine testing by clinical labs in the months following the onset of the pandemic, on balance, most of the major IVD companies saw positive revenue growth during the second quarter of 2020. At the same time, demand for lab analyzers and tests for COVID-19 exceeded the ability of the manufacturers to supply enough product to clinical laboratories here in the United States and abroad.
For IVD manufacturers, a second-quarter financial decline in one side of the business—routine clinical laboratory testing—was generally offset by skyrocketing sales of molecular tests. In fact, Roche even reported molecular test sales at record levels, and Hologic said molecular testing there is “on a roll.”
But going forward into the second half of 2020, uncertainty about the pandemic’s duration and when a SARS-CoV-2 vaccine might be ready for clinical use, pose questions about what quantities of COVID-19 tests will be needed and where the global companies should market them.
During the earnings calls, there was recognition by IVD executives that healthcare providers and clinical laboratories are facing tough challenges meeting operating and financial goals. Thus, lab customers may put off capital investments, such as in laboratory analyzers.
Similarly, IVD firms’ access to labs became an issue during the second quarter. A Danaher Beckman Coulter executive told investors it has been difficult to do laboratory equipment installs (for technology that was planned pre-COVID-19) as their service people could not access healthcare campuses and labs during the pandemic.
The recaps of the second quarter earnings reports of several of the larger IVD companies that follow will provide lab administrators and pathologists with a basic overview of financials, testing, and relevant comments from the key manufacturers serving and supplying clinical labs.
ROCHE: COVID-19 Tests ‘Soaring,’ Overall U.S. Sales Dropped in Q2, Global Sales Up 3%
During the second quarter, the pandemic impacted Switzerland-based Roche in different ways. In the diagnostics division, Roche reported sales growth of 3% due to COVID-19 testing.
Further, requests for Roche equipment for processing COVID-19 tests are soaring, Reuters reported. “The orders we’ve gotten are as high as what we would normally sell in four to five years,” Thomas Schinecker, Diagnostics Head, said in the Reuters story.
“We even had governments that flew in with military planes to pick up instruments, because they were in such need.”
Indeed, Roche’s global sales of molecular diagnostics grew by 61% during Q2-20 and totaled US$6.6 billion even as U.S. sales declined by 4% overall, Roche reported. The company said sales of it cobas SARS-CoV-2 PCR tests offset much of the pandemic’s negative affect on the sales of other routine diagnostic tests.
Strong Demand for COVID-19 Test
“We have seen very strong demand for our molecular COVID-19 test, and that has been compensating for the decline in the routine testing,” Severin Schwan, Roche CEO, noted during an earnings call with investors on July 23. Roche executives see healthcare providers “adapting” to the pandemic.
“The ultimate impact will depend on the length and severity of the pandemic,” Bill Anderson, Roche CEO Pharmaceuticals, told investors during the call. “But we also see the healthcare system adapting.
“We see hospitals, doctors, and clinics figuring out how to make sure patients do get treated,” he continued. “We’re confident we won’t see another month like May, and that makes us optimistic for the rest of this year and going forward.”
Other data and news reported by Roche for the period were:
• Sales expected to grow in the low- to mid-single digit range.
• Launches of new COVID-19 diagnostic tools: Elecys IL-6 Anti-SARS-CoV-2 test, Roche v-TAC digital algorithm, and the Elecys Il-6 test.
• Six medicines for COVID-19 in 28 clinical trials.
DANAHER–BECKMAN COULTER, CEPHEID: Revenue Up, Four-in-One COVID-19 Test Planned
Danaher Corporation, headquartered in Washington, D.C., has a diagnostics division that includes several well-known diagnostics companies, including Beckman Coulter, Cepheid, Leica Biosystems, and Radiometer. In its Q2-20 earnings report, Danaher disclosed that the diagnostics business had revenue of $1.66 billion, a gain of 2.5% over Q2-19.
Danaher, which has Beckman Coulter Diagnostics as one of its core clinical laboratory and pathology businesses, had sales of $5.3 billion during the second quarter, Tom Joyce, Danaher President and CEO, told investors in a July 23 earnings call.
“We are very pleased with our second quarter results, especially in such a challenging environment. We are tackling the challenges and opportunities presented by the COVID-19 pandemic head-on and are fortunate to do so from a position of strength,” Joyce said.
“Moving to Diagnostics, reported revenue was up 2.5%, with 5% core revenue growth led by continued strength at our point-of-care businesses Cepheid and Radiometer,” he continued. “Global demand for Cepheid COVID-19 tests and GeneXpert instruments helped drive more than 100% core revenue growth at Cepheid in the quarter.”
Other data and news reported by Danaher about its diagnostics division for the period were:
• Declines at Beckman Coulter Diagnostics and Leica Biosystems due to the severe slowdown in elective procedures and wellness visits in the U.S. as well as in Europe.
• “Record number” of Cepheid instruments delivered to customers.
• Development of a rapid four-in-one combination test for COVID-19, Influenza A, Influenza B, and RSV from a single patient sample with expected launch in third quarter.
During the call’s Q&A period, an analyst inquired about the company’s take on hardware purchases relative to Beckman Diagnostics and Leica Biosystems.
Joyce’s response described the challenges company representatives experienced getting access to labs. “In this COVID-19 environment, access to hospitals in any area—whether it’s the reference lab area, anatomical pathology, microbiology—access to those labs’ hardware installations has been limited, if not in certain cases, zero,” he said.
“We are starting to see hospitals opening up a bit relative to elective procedures and overall utilization, and we are now starting to see our ability to get in and install equipment that’s in the order book. So, we will see some improvement … [but] hospitals are still highly restricted in their access [for lab equipment installs]. But as we go into later this year and early next year, we’ll start to see that return to a more normal growth rate,” explained Joyce.
ABBOTT LABORATORIES: Rebounding in Q2, Global Growth of 7%
Abbott Laboratories, based in Abbott Park, Ill., reported sales of $7.3 billion during Q2, which included $615 million of COVID-19 diagnostic testing, the company said in a news release.
In diagnostics worldwide, Abbott boosted sales 7% during the period (Abbott uses an organic measure that excludes “foreign exchange” effects). The company noted less conventional testing during Q2 that picked up near quarter- end and were also “partially offset” by demand for Abbott’s antibody testing.
“The diagnostics business—excluding COVID-19 tests—rebounded to 90% of pre-COVID-19 levels by the end of the second quarter,” Robert Ford, Abbott’s President and CEO, said during the company’s July earnings call with investors and financial analysts. “Over the first half of the year, we’ve developed and launched several COVID-19 tests across our testing platform for both laboratory and rapid point-of-care settings.”
But sales for the second quarter overall declined 5.4%, according to Bob Funck, Executive Vice President of Finance and CFO, who spoke during the earnings call.
Other data and news reported by Abbott for the period were:
• Revenue from IgG antibody testing on Abbott’s Architect and Alinity platforms was $152 million.
• Molecular diagnostics revenue increased 241%, driven by $283 million in sales of COVID-19 molecular testing on Abbott’s m2000 and Alinity platforms.
• Rapid diagnostics revenue increased 11%, with noteworthy sales of $180 million in Abbott’s COVID-19 Rapid Diagnostics division.
A question surfaced during the earnings call about “durability” of COVID-19 testing going forward in the second half of the year and during 2021. Ford acknowledged a possible “vaccine phase” and an opportunity for Abbott in testing for surveillance purposes.
“That’s probably where I also think that we’ll see an increase in serology and antibody testing [for COVID-19]. That’s going to be an opportunity for us and for other companies,” Ford said.
SIEMENS HEALTHINEERS: Imaging Sales Make up for Sales Decline in Diagnostics Division
Siemens Healthineers, with headquarters in Erlanger, Germany, has two primary multi-billion dollar businesses. One is imaging and the other is diagnostics. In its second quarter earnings report, Siemens Healthineers stated that there was a “slight decline” in its diagnostics business that was offset by revenue growth in imaging and advanced therapies.
“In Q2, the impact from the pandemic took roughly low to mid single-digit percentage points off the comparable growth at Diagnostics,” Jochen Schmitz, Siemens CFO, said during an earnings call in May. “Consequently, Diagnostics posted declining revenues of minus 2.2% driven by declining reagent sales, which represents 90% of our diagnostic business. As the reagent sales usually carry most of the gross margin in that business, a drop in regent sales also dropped through to the bottom line to a large degree.”
Other data and news reported by Siemans Healthineers for the period were:
• Revenue of €14.2 billion, on par with Q2 2019.
• Orders fell 8% to €15.1 billion.
• Net income was €0.7 billion compared to €1.9 billion in Q2 2019.
• Original fiscal 2020 guidance cannot be confirmed “given the current situation.”
“Bear in mind that Diagnostics is still in transition, and we said previously that fiscal year 2020 will be tough. But we also said that Q2 will be better than Q1, which is the case, admittedly on a low level,” Schmitz added.
HOLOGIC: Molecular Testing ‘On a Roll’, Women’s Health Sales Fall During Second Quarter
Hologic of Marlborough, Mass, is the developer of the Panther instrument (used at more than 1,800 clinical labs worldwide) and the Panther Fusion Platform for SARSCoV-2 testing.
The company performed well in its Diagnostics and Surgical areas through most of the quarter, according to a news release. Still, Hologic, which focuses on women’s health technology, also experienced a negative impact on sales as patient visits to doctors dropped during second quarter and customers put off mammogram appointments.
“As COVID-19 spread and threatened global economies, we moved quickly to mitigate the risk with a focus on cash, so that our healthy fundamentals would be intact on the other side of this pandemic,” Stephen MacMillan, Hologic’s Chairman, President and CEO, said during an earnings call about fiscal Q2, ending March 28.
“As one of the world’s leading molecular diagnostics firms, this is a unique moment for us to live into our purpose.
“Global molecular revenue increased 14.2%, the highest growth rate since 2012,” he continued. “This included only about $3.4 million of assay revenue related to our COVID test.
“Excluding this, the business still grew more than 12%, as we continued to layer additional tests—including our COVID assays—onto our Panther installed base,” MacMillan explained. “Make no mistake about it: our Molecular Diagnostics business is on a roll on a global basis,” he said.
Hologic announced plans for a second SARS-CoV-2 assay for the Panther Fusion, and the milestone of manufacturing one million tests weekly.
Other data and news reported by Hologic for the period were:
• Revenues of $756.1 million, a decrease of 7.6% compared to same time last year.
• Molecular diagnostic revenue of $190.6 million (an increase of 13.6%, the highest rate since 2012), which included $3.4 million of sales from SARS-CoV-2 testing.
• About 600,000 Panther Fusion SARSCoV-2 tests are performed monthly, actually 12-times more than comparable tests done on the Panther Fusion system.
Routine Test Volume Recovery
What was not discussed in much detail during the second quarter earnings calls these companies had with investors was the companies’ expectations for the recovery of routine clinical laboratory testing. The nation’s labs saw declines of about 60% in routine testing during March, April, and May. Routine test volumes are recovering, but are still at least 20%, collectively, below pre-pandemic levels.